By Richard Pickering, Head of Futures Strategy
Brexit means…? – Since the EU referendum, and whilst having different views on implementation, both major parties have supported the result, meaning that Brexit means Brexit. Or does it? Oxford Economics’ latest thinking on the subject puts probabilities of 15% on Remain and 31% on BINO (Brexit in name only), leaving WTO (no deal) at 30% and a free trade deal at 24%. Essentially, there’s a 46% chance that Brexit does not in fact mean Brexit. Events this week may give cause to think that this probability has increased further. Firstly, Jeremy Corbyn called for a General Election (2/1 odds for 2019). If that is not forthcoming, and if Parliament rejects the Brexit deal, then he said he would back his party’s support for a second referendum. Sir Kier Starmer went a step further, stating ‘nobody is ruling out Remain as an option’. This will find support in the Labour party, 90% of whose members would vote to stay in the EU on recent polling. Intentions across the country have also shifted, suggests recent polling, with 59% of the public now supporting Remain in the event of a second vote (the highest to-date). Cumulatively this represents a significant policy shift by Labour, but one that would still be reliant on the support of Tory rebels to avoid Brexit. Nevertheless, such is the political change in the wind that even in the event of Brexit, Betfair are now offering 5/6 odds that the UK will apply to rejoin the EU by 2027.
Far fetched? – A well-subscribed initial public offering of online retailer Farfetch’s stock saw day one pricing pop at 42% above the pitched price. A sign of confidence in the operator’s model (still not turning a profit), or more of a reflection on the online lux market? Selling luxury goods online has never sat comfortably with retailers. Conventional wisdom suggests that pricing at the premium end requires the experience that only offline can offer. However, the market is increasingly suggesting otherwise. Farfetch’s IPO filing gives some insight into how they see both the business and sector evolving. Describing itself as ‘the only truly global luxury digital marketplace at scale’ it points to a Bain study which suggests that lux online will grow from 9% to 25% of total sales by 2025, and how its offline competitors have been cautious in the adoption of technology. A changing demographic is thought to be responsible. Millennials (a defined term in the prospectus – I now realise that I am not one) and Gen Z are expected to account for 45% of all lux spend by 2025. Meanwhile the growing importance of emerging markets such as China offers considerable potential for growth. The business states that it has 631 data scientists on its team, driving its approach to data insights and merchandising. However, it still sees a role for shops. The purchase of Browns in 2015 is stated to allow Farfetch to ‘understand the luxury fashion ecosystem through the lens of a boutique.’ One of its growth strategies is to add ‘brands, boutiques, department stores and other partners’.
Window seat – In Japan, being sat by the window is a sign that something has gone wrong; a form of punishment that moves the office worker further away from the heart of the group. In the West the opposite is true. According to a new survey by HR advisory firm Future Workplace, ‘access to natural light and views of the outdoors’ is the top perk sought by office workers. It seems that this is something lacking in many offices; 47% of those surveyed say they ‘feel tired or very tired from the absence of natural light’. Beyond providing a perk to the employee, other research from Cornell University shows that natural light ‘significantly improves health and wellness among workers’, and ultimately leads to a more productive workforce. Easy: provide more window seats? Deep floorplates are the issue. According to Mohammed Bouberki of the University of Illinois, ‘daylight from windows almost vanishes after 20 to 25 feet from the windows’ (less in built up areas) and the challenge is that building smaller floorplates to increase window-to-floor ratios, elicits trade-offs in circulation and building efficiency. Nevertheless, when faced with the cost of providing alternative (less valued) perks to employees (such as cafeterias, gyms etc) perhaps going back to the drawing board on building design might actually prove the most effective solution.
The high life – The price that an owner-occupier is prepared to pay for a house is multivariate, meaning that cookie cutter decisions on developments are not typically good ones. Location and size are well established and relatively objective factors, but access to various amenities is more difficult to quantify. According to a report by Vivid Economics, living close to green space can boost the average house price by about £900, (this figure rises to £500,000 in London’s areas of special amenity such as Hyde Park and Hampstead Heath). This offers up an interesting dilemma for developers. On the one hand, creating green spaces as part of a large scheme will improve capital values. On the other, that land is sacrificed from being developed itself which has an opportunity cost. The financial equation can be finely balanced and depend on what other public amenity is located nearby. New York’s High Line is a commonly cited example of how to drive value from disused space and catalyse regeneration ($153m cost vs £2bn of development unlocked). It is possible that Camden may one day also have its own variant. A recent proposal to green a disused segment of the North London Line between Camden Market and King’s Cross could create accessible green public space in what is a very urban area of London. As cities densify, it is this innovative reuse of space rather than the dedication of new plots that is likely to be the driver of more greenery. A recent report by the World Economic Forum highlights this need and calls for our cities to become more ‘agile’ to ‘enable their citizens to thrive’.
Walking the talk – In a world of decreasing product lifecycles and digital disruption, innovation is a key competitive requirement. This includes being quick to market with new products and constantly searching for efficiencies and value added. CB Insights’ State of Innovation report finds a number of businesses lacking in both regards. Whilst innovation was acknowledged as being important (85%), 78% focus on incremental innovations which ‘enhance existing products and services’ instead of addressing disruptive risks or major repositioning. This may be because businesses find it difficult to look beyond their existing value chain for innovations, instead focusing on customers and employees as sources of guidance. Further, those that do spot opportunities are often too slow to act to capitalise on them with 60% of companies answering that ‘it takes a year or longer to create new products’. Rapid advancements in technology are creating an uncertain landscape for businesses, particularly when it comes to corporate innovation. While it is important to identify and respond to digital threats, it is equally important to not follow the pack (competing on similar factors is fatal to margins). The report highlights higher performance in businesses that take first mover positions. Interestingly, the report also finds that rather than it being the younger cohort seeking out change, the more senior the survey respondent, the more importance they placed on innovation.
Victory fridges – As a long-suffering occasional supporter of Hull City FC, I have developed a healthy degree of empathy with underdogs. In that regard, spare a thought for the poor Cleveland Browns. The Ohio-based NFL team had failed to win a game since December 2016. An incentive to find their way back to winning ways was provided in the form of two of my favourite things: technology and beer. Prior to the start of the 2018 season, Bud Light distributed locked fridges full of beer around Cleveland, each of which was set to be automatically unlocked by smart technology the second that the Browns finally managed to win a game. In what has proved to be a shorter payoff than was perhaps anticipated, Cleveland this week beat the New York Jets, and the technology did the rest. Initial jubilance turned to caution, with the Cleveland Police force tweeting ‘We WON!!! — Wait…Oh God. The free beer thing…’ Forget natural daylight, this feels like the perfect workplace perk. At the risk of encouraging permanent insobriety, I propose an automated beer fridge to replace the Cappuccino Speculoos machine (this is an actual thing) on the 2nd floor of our offices at 125 Old Broad Street. Perhaps we could set the trigger at a level that guarantees success. For example, being named EG Offices Adviser of the Year?